Shell Will Fight Nigerian Oil Spill Fine to the Bitter End

LONDON-(Dow Jones)- The Nigerian National Assembly will make a decision on whether to impose a $5 billion fine on Royal Dutch Shell SA’s Nigerian subsidiary,Shell Nigeria Exploration and Production Company, when it returns from its summer recess in September, Mohammed Zakari, Chairman of the Media and Public Affairs Committee for the Nigerian National Assembly, told Dow Jones Newswires Monday.

Federal authorities last week recommended that Shell pay the hefty penalty for an incident on the offshore Bonga field last December that caused 40,000 barrels of crude to spill into the Gulf of Guinea.

The National Assembly will hear a report from the House Committee on the Environment when it returns from its annual recess in September and decide whether to approve the fine, Mr. Zakari said.

Shell was forced to halt production from the 200,000 barrel-a-day Bonga field in December after a leak occurred during a routine tanker loading operation. The result was one of Nigeria’s worst oil spills in more than a decade.

“The money will go to the development of the communities in those areas where the oil spill has caused environmental damage,” Mr. Zakari said, highlighting an emerging issue of contention as Shell maintains that the oil spilled from Bonga never reached the Nigerian coastline some 120 kilometers away.

Shell said none of the crude reached land and that much of the leaked oil dispersed naturally in the water or evaporated. Some crude did wash up along the Western Niger Delta coastline, which Shell cleaned up, despite expressing doubts that it originated from Bonga.

“[Shell] responded to this incident with professionalism and acted with the consent of the necessary authorities at all times to prevent an environmental impact,” a company spokesman said in a statement issued last Tuesday.

And Chike Onyejekwe, managing director of Shell Nigeria Exploration and Production Company, said the National Oil Spill Detection and Response Agency’s own analysis “did not show any significant agreement between the fingerprint values from Bonga oil samples and those from [the spill impacted] communities.”

The company has said it will challenge any fine levied against it, a fight analysts said it would likely win.

“Shell will fight this fine to the bitter end,” said Marne Beukes, energy analyst for Africa at IHS Global Insight.

The large penalty comes at a time of heightened concern over the safety of offshore oil production, following BP PLC‘s (BP.LN) disastrous Deepwater Horizon explosion and oil spill in the Gulf of Mexico in 2010. Shell is currently facing intense scrutiny from U.S. authorities and environmental groups as it prepares to drill for oil offshore Alaska.

The fine is particularly severe in comparison to other recent incidents. Based on Shell’s estimate of the 40,000 barrels of oil spilled in the Bonga leak, the fine equates to around $125,000 a barrel.

By comparison, BP could face a fine under the clean water act for the Deepwater Horizon spill of up to $1,100 a barrel if it isn’t found guilty of gross negligence, or $4,300 a barrel if gross negligence is proved.

The proposed fine also sends a clear message as Nigeria seeks to make major changes to clean up its oil industry and moves towards passing the long-delayed Petroleum Industry Bill that would establish a new regulatory framework for the oil business.

“I am not surprised at the mammoth fine and the government is definitely upping their game. Previous spills have seen offenders come of lightly, and with this steep fine the government is trying to send a clear message to the industry to either raise safety standards or face the consequences,” IHS Global Insight’s Ms. Beukes said.

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